New amendment to law on medicine paves road for decreasing of prices

Azerbaijan continues its reforms in the social sector. The care of the state for its citizens increases day by day. The decision adopted by the Tarif Council on September 15, 2023, regarding the amendments to the Law "On Medicines" is one of the steps taken in this direction.

According to the new law, from now on the Tariff Council will set the maximum prices for medicines, and the companies are allowed to sell their products at any price on a condition that the price should not exceed the price set by the Council. However, prior to the adoption of the new law, prices of medicine had been set by the Tariff Council and the pharmacies had sold the medicines only at these prices, which was contrary to the requirements of the market economy.

The previous law could be seen as plausible for the population in the short run, but it is doomed to fail in the long run. In other words, the previous type of regulation reminds us of the socialist type of regulation and since it suffocates the competition after a certain time the prices hike. It has been proven for a long that no administrative measure cannot control the price but only competition. Because there are too many unpredicted expenditures in periods of the research and production of any science-based products, including pharmaceutics, and governments usually do not consider these expenditures when they set prices. In this case, as the pharmaceutical companies cannot make money, they stop manufacturing products which paves the way for a deficit of products.

The less products means more increase in prices. On the contrary, if companies can sell their products at the prices that please them, they will make more products. In this case, since the number of companies and products increases, there will be competitive conditions and the prices will be stabilized at a convenient amount. Let us not forget that, no company can survive if it sells any products below than producing cost.

That is why, the modern economy requires governments interfere to the businesses not too much such as setting prices and so on, but to create competitive conditions through invisible hands as described by Adam Smith.

Besides, currently, the registration process takes more than 9 months, which means that it takes more than 1 year for a new medicine to enter the Azerbaijani market. In the corresponding law, the registration of medicinal products was determined within a maximum of 4 months. This includes both the reduction of the standard registration process and the recognition of foreign (international) registration. Simplification will stimulate the import of drugs to Azerbaijan and improve the supply of drugs to the population. Thus, it will ensure that the period of registration of drugs is 1-4 months.

Moreover, the amendment includes the introduction of electronic prescriptions which require not the name of the medicine but the active substance (international non-patented name). This will have a positive effect on the strengthening of the control of prescribed medicines and will reduce the population's unnecessary dependence on various trade names and increase the opportunity to choose a drug at a more appropriate price. More precisely, electronic prescriptions will enable the patient to buy the medicine that suits his/her wishes and budget among many drugs with the same composition.

In a nutshell, with the help of this amendment, medicines will be more available, the number of varieties will be increased, create a more favorable competitive environment in this field, and it will pave the way for decreasing of the prices.